March 28, 2024
Israel Unveils Proposal for Shekel CBDC with Interest Features
Policy & Regulation

Israel Unveils Proposal for Shekel CBDC with Interest Features

Introduction of Shekel CBDC with Interest Option

Israel’s central bank has unveiled plans to introduce a new Israeli shekel central bank digital currency (CBDC) that offers the option of bearing interest. In a recent announcement on March 11, the Bank of Israel outlined key features of the Shekel CBDC, which will be implemented in a two-tier model to facilitate instant, 24/7 payments and support multipayment functionality.

Key Features and Privacy Measures

The Bank of Israel’s shekel CBDC will boast several features, including offline usability, balance limitations, and the potential for interest-bearing capabilities. Notably, the central bank emphasized its commitment to user privacy, stating that while it will have control over the system’s operation and monitoring, it will not access personally identifiable information about end users’ balances and transactions.

Implications for Commercial Banks and Interest Rates

Commercial banks in Israel currently offer significant interest rates of 4.86% on customers’ fiat shekel deposits and savings. Under the central bank’s proposed plans, banks would have the option to include the shekel CBDC in their short-term liquidity reserves, although the CBDC holdings would not accrue interest. This move aims to align with the data structure required for compliance and interest applications, particularly for different user types and balance sizes.

Timeline and Future Prospects

Israel has been exploring the possibility of issuing a digital shekel since 2021, but concrete pilot tests have yet to be initiated. The Bank of Israel acknowledges that decisions regarding the digital shekel system are still under consideration due to its interconnected components. However, the central bank suggests that the issuance of the shekel CBDC could occur as early as April 2023, contingent upon the adoption of stablecoins for payments within the country.

Evaluation of Stablecoin Adoption

The Bank of Israel remains vigilant regarding stablecoin adoption trends, as they could influence the timing and implementation of the Shekel CBDC. As of the current assessment, stablecoin usage for payments in Israel has not significantly proliferated. However, the central bank continues to monitor developments in this space closely.

Advancing Towards a Digital Shekel Future

The Bank of Israel’s announcement marks a significant step forward in the nation’s journey towards a digital shekel future. With plans for a shekel CBDC that offers interest-bearing options and prioritizes user privacy, Israel’s central bank aims to modernize its payment infrastructure and adapt to evolving financial landscapes. As the timeline unfolds and stablecoin dynamics evolve, stakeholders will be closely watching for further developments in Israel’s CBDC journey.


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